Brent crude oil reached its highest level since May on Thursday due to escalating conflicts in the Middle East, raising concerns about the global oil supply. Simultaneously, the U.S. stock market faced significant losses driven by sharp declines in Alphabet and Tesla, two prominent companies on Wall Street.
The S&P 500 declined by 1.2%, marking its first consecutive weekly loss since March. The Dow Jones Industrial Average fell by 1% while the Nasdaq composite dropped by 2.2%.
The surge in oil prices added pressure on stocks as businesses faced increased costs, diverting consumer spending towards higher fuel prices. The price of Brent crude oil, a key international benchmark, surged by seven percent to settle at $100.69 US per barrel.
The spike in oil prices was triggered by recent attacks on two Saudi oil tankers in the Red Sea, threatening a crucial route for oil transportation from the Middle East to global markets, including the Strait of Hormuz.
Amidst the economic significance of the sea route, U.S. President Donald Trump warned of “major military punishment” against Houthi rebels in Yemen, supported by Iran, if they continued targeting ships.
The recent surge in oil prices has the potential to reignite inflation, prompting concerns about central banks raising interest rates, which could slow down economies and impact stock and investment prices.
Higher oil prices pushed the yield of the 10-year treasury bond up to 4.69%, a notable increase from pre-conflict levels. This rise has also led to a corresponding increase in long-term U.S. mortgage rates.
With gasoline prices typically following oil price movements, the average gas price in Canada rose to $1.802 per liter, reflecting a 1.9-cent increase from the previous day’s average.
On Wall Street, companies heavily reliant on fuel witnessed significant stock declines. Despite reporting better-than-expected profits, American Airlines saw an 8.4% drop, while Southwest Airlines fell by 6.2%.
Tesla’s stock plummeted by 14.5% following the company’s weaker profit report, overshadowing stronger profit and revenue performance by Alphabet, which saw a 7.1% decline.
Investor concerns about Alphabet’s increased spending on artificial intelligence projects contributed to the stock decline, leading to uncertainty about the returns on such investments in terms of productivity and profitability.
These uncertainties surrounding AI investments have contributed to market volatility in recent weeks, impacting overall stock market performance globally. European markets experienced sharp declines in response to surging oil prices, with France’s CAC 40 index falling by 1.6%.
While Asian markets initially showed strength, with South Korea’s Kospi rising by 4.4%, the global economic landscape remains volatile amidst the ongoing geopolitical tensions in the Middle East.
